Helicopter Operators Set For Take-Off As Oil Drilling Picks Up

A pickup in offshore drilling is swelling the order books of the handful of helicopter operators that shuttle oil workers to and from remote rigs. Their stock prices, depressed after Big Oil's recent spending cuts, could also be readying for take-off.

Bristow Group Inc., Inc, which flies helicopters made by Sikorsky Aircraft Co., plans to invest $1 billion this year to procure just some of the 300 new helicopters that Barclays estimates will be needed by the oil and gas industry over the next five years.

"We will invest more in this one year than in the last two-and-a-half years combined," said Jonathan Baliff, the chief financial officer of Bristow who will take over as CEO on July 31.

"To invest a third of our market capitalization in one year is one way of saying we are optimistic of the future."

With a market value of $2.7 billion, Houston-based Bristow is the largest of the niche group of companies that supply helicopters to the oil and gas industry and, increasingly, for search-and-rescue missions.

As oil majors such as Exxon Mobil Corp and Royal Dutch Shell have announced spending cuts after years of double-digit percentage growth, investor appetite for auxiliary services has waned.

Bristow's stock has fallen 6 percent in the last six months. Shares of Era Group Inc, a competitor, have fallen 11 percent, while CHC Group Ltd has lost over a quarter of its value since its shares were floated in New York in January.

But these dips could make the stocks a shrewd buy, Thomson Reuters data shows. Analysts point to renewed appetite for drilling in the Gulf of Mexico, West Africa and the North Sea after a lull that followed the Gulf of Mexico oil spill in 2010.

Technological advances are making offshore drilling more cost-efficient, reversing a decline in production and potentially rivaling shale hot spots such as Texas's Eagle Ford formation in terms of growth.

Helicopter operators are also winning business in the search-and-rescue field, picking up contracts as governments cut their coast guard budgets. Bristow, for example, last year won a $2.7 billion contract to run Britain's search-and-rescue helicopter services for a decade from 2015.

"We are seeing more and more interest, with oil and gas operators actually putting search-and-rescue portions into crew shuttling contracts," CHC Group CEO William Amelio told Reuters.

CHC has ordered 33 new helicopters and Era 20 from companies such as United Technologies Corp unit Sikorsky Aircraft, UK's AgustaWestland NV and Eurocopter. The orders will increase their fleets by 14 percent and 12 percent respectively.

Of nine analysts that cover both Bristow and CHC, most have a "buy" rating on both stocks and none recommend selling either, according to Thomson Reuters. All three analysts covering Era have a "buy" or higher rating on the stock.

Era should be trading at $33.09, a 14 percent premium to the stock's Monday close, according to StarMine's Intrinsic Valuation model.